FOUR SCORE – Hedge Fund Assets Quadruple Since
1994

The group estimates that $60 billion of the growth came
from new funds, while $100 billion resulted from
performance gains.

The report notes that total assets under management in
the hedge fund industry are estimated to be $350 billion –
$400 billion, with an estimated $50 billion in privately
managed accounts within hedge funds and another $100
billion with funds that refuse to report to information
services.

“Overall we have seen strong asset flows particularly
into the equity-oriented sectors,” noted Nicola Meaden, CEO
of TASS Investment Research and Managing Director of
Tremont Advisers. “Our data shows a consistently increasing
appetite for equity market neutral styles even as overall
market volatility has increased.”

Fund Flows

The study also looked at various fund types:

Global Macro
– a category which enjoyed its hey day pre-1994, with funds
flowing from the category consistently over the past 6
years. A notable exception was a 12-month period beginning
in mid-1997 as the strong performance of Soros Fund
Management’s Quota Fund and the launch of a series of new
funds wrapped around Tiger Investment Management.

Equity Market Neutral
– TASS shows that assets have consistently moved into this
category throughout the evaluation period, despite rocky
performance in late 1998 and much of last year. Investors
in this category are seeking equity exposure without
directional market exposure. However, the study questions
if the category can handle the demand in view of the
capacity constraints of the neutral market strategy.

Convertible Arbitrage
– the most cyclical of the categories, major fund
investment occurred at the end of 1997 and beginning of
1998, at the very top of the market. The subsequent “flight
to quality” and liquidity crunch following the Russian
crisis squeezed convertible arbitrage managers on both
sides.

Event Driven
– while this category includes both distressed securities
investing and merger (risk) arbitrage, the study suggests
that most of the fund flows over the past five years have
gone to merger arbitrage. The latter has been pumped up by
the increased merger activity in the US and Europe since
the introduction of the Euro, particularly since 1998.
Distressed securities, on the other hand, have tended to be
poor investments.

Long/Short Equity
– the roaring bull market has consistently drawn funds into
this category in every quarter except the final quarter of
1998, as fund managers liquidated positions to fund
redemptions from other portfolio segments. Managers were
also cutting back on market exposure at that year-end.
Inflows remained strong, with peaks in the last quarter of
1999 and first quarter of this year.

The report analyzed data from 2,200 funds, including 620
“graveyard” funds. Graveyard funds are those that were in
existence during the period, but are now closed down.

Data for activity prior to 1994 was deemed too sporadic
to provide meaningful results by TASS.